🎧 Listen to This Article
Being self-employed comes with numerous benefits, but it also brings the responsibility of managing your own taxes, often at a higher cost. As a freelancer, contractor, or small business owner, you are responsible for covering expenses that an employer would typically pay, including Social Security and Medicare taxes, office supplies, and even a company vehicle.
However, there are many tax deductions that self-employed individuals can take advantage of to reduce their taxable income. Below are five key deductions every self-employed person should know for 2025.
1. Home Office Deduction: Save on Utilities and More
If you run your business from home, you may be eligible for the home office deduction. This deduction applies to any part of your home used “regularly and exclusively” for business purposes.
You can deduct expenses related to the business use of your home, including:
- Rent or mortgage interest
- Property taxes
- Utilities (electricity, water, internet, etc.)
- Insurance premiums
- Maintenance and repairs
This can be a significant deduction, especially if you work full-time from home, so be sure to keep accurate records of your expenses.
2. Self-Employment Tax Deduction: Reduce Your Social Security and Medicare Burden
As a self-employed individual, you are responsible for the self-employment tax, which covers Social Security and Medicare. This tax can add up to 15.3% of your net earnings, compared to the 7.65% that employees typically pay.
The good news is that the IRS allows you to deduct the “employer’s portion” of this tax, which means you can reduce your taxable income by half of what you owe. As Investopedia explains, this deduction is available whether you pay taxes quarterly or in one lump sum.
3. Health Insurance Deduction: Save on Medical Expenses
For self-employed individuals, the cost of health insurance can be a significant expense. Fortunately, you may be able to deduct your premiums for yourself, your spouse, dependents, and even children under age 27.
The IRS allows you to deduct premiums for medical, dental, and long-term care insurance, which can reduce your overall taxable income. Be sure to check the specific rules for long-term care insurance and ensure you’re following the guidelines set by the IRS. This deduction applies whether you purchase insurance through the marketplace or another provider.
4. Retirement Savings Deduction: Build Your Future and Save on Taxes
Contributing to a retirement plan is a smart financial move, and it can also reduce your tax liability. Self-employed individuals can deduct contributions made to retirement plans like SEP IRAs, SIMPLE IRAs, or a solo 401(k).
In addition to the basic deductions, you may qualify for the Saver’s Credit, which gives you a tax credit for contributions to your retirement account if your income meets specific thresholds. According to Kiplinger, the credit can be worth up to 50% of your contributions, depending on your adjusted gross income (AGI).
5. Continuing Education Deduction: Expand Your Skills and Save
If you’re taking courses to improve your skills for your current work, you may qualify for a continuing education deduction. This includes expenses for tuition, books, supplies, and even transportation to and from classes.
However, it’s important to note that the IRS only allows deductions for courses that “maintain or improve skills needed in your current business.” If you’re pursuing a completely different career or educational path, you may not be able to claim these expenses.
Take Action Now to Maximize Your Deductions
Self-employed individuals can face a higher tax burden, but by taking advantage of these key tax deductions, you can reduce your taxable income and keep more of your hard-earned money. To ensure you’re fully compliant and maximizing your deductions, consider consulting with a tax professional or using reliable tax software.
Make sure to check your eligibility for these deductions and prepare your tax documents early to avoid last-minute stress.
For further details, clarification, contributions or any concerns regarding this article, please feel free to reach out to us at editorial@tax.news. We value your feedback and are committed to providing accurate and timely information. Please note that all inquiries will be handled in accordance with our privacy policy
